June 24, 2013

CI’s $200M fund to nurture bioscience research

Claire Leonardi, CEO, Connecticut Innovations

Highlights of Bioscience Fund:

$200 million investment over 10 years

• $10 million annually years one and two

• $15 million annually years three and four

• $25 million annually years five through 10

• Funding will fill gaps in the marketplace, not duplicate current public funding

• Investments will be subject to a rigorous vetting process

• Creation of Advisory Board to provide oversight and strategic guidance

Connecticut Innovations is taking a new investment approach as it prepares to launch a $200 million fund to spur bioscience research and development in the state.

The fund, originally pitched by Gov. Dannel P. Malloy and approved by lawmakers during the recent legislative session, will provide grants, equity investments, loans and loan guarantees to bioscience related initiatives over the next 10 years.

In addition to investing in early stage companies, however, CI will provide capital to researchers who are still only in the idea stage, meaning they've made a discovery in a lab but haven't yet formed a viable business.

Funds, for example, could go to university faculty and students or companies that have made new discoveries in research and development labs.

The riskier investment approach, officials say, aims to fill a critical funding gap that could help drive commercialization of more bioscience research and ideas into actual products, services and businesses.

“A lot of innovation comes from small companies in universities,” said Claire Leonardi, the CEO of Connecticut Innovations, the state's quasi public venture capital arm. “That is predicted to drive the future economy. This fund will be a connector to build private, public partnerships.”

The $200 million fund is part of a broader economic development strategy being implemented by the state to spur bioscience job growth in Connecticut. It follows the $864 million Bioscience Connecticut initiative approved in 2011, and a $291 million investment in Jackson Laboratory, which is building a research center in Farmington that will focus on personalized medicine discoveries.

Lawmakers also approved about $2 billion in funding this legislative session to ramp up science, technology, engineering, and math programs at UConn.

The goal, however, isn't just about boosting Connecticut's research capacities, officials said. The state wants to translate its research investments into viable businesses that add jobs and stir economic development.

Venture capital funding is a key component of growing start-up companies, but most funds shy away from making investments in early stage businesses. Providing private capital to researchers in the proof of concept stage is usually a nonstarter.

That is where the bioscience fund can come into play.

“I think there is certainly a need for companies in the idea stage to have access to capital that allows them to incubate ideas and get them off the ground and running,” said Joe DeMartino, the managing director of the statewide Angel Investor Forum.

DeMartino said companies still in the proof of concept stage typically rely on university research grants or angel investments from family and friends. The first round of private capital doesn't kick in until a company is pushing sales or marketing.

CI has always been an early-stage investor, injecting equity into start-ups, but now it is getting involved even earlier in the business life cycle.

Leonardi said many of the program's details still need to be worked out but the fund aims to stir commercialization efforts at universities and other research labs around the state.

That includes research related biomedical engineering, health information management, medical care, medical devices, medical diagnostics, pharmaceuticals, and personalized medicine.

It is a much riskier investment approach because few ideas generated in a lab actually translate into marketable products and services. That will require greater oversight on the part of CI, which will form a 13-member advisory committee to approve all deals, Leonardi said.

All research will also have to undergo peer review, she added.

The $200 million fund will be rolled out gradually over the next 10 years, and investments likely won't start flowing for a few months. CI is also planning to hire a new manager to lead the investment strategy.

Susan Froshauer, president and CEO of Connecticut United for Research Excellence (CURE), the state's leading bioscience lobby, said she hopes the fund will stir more private, public partnerships and cultivate a broader group of private investors.

Froshauer said the state's bioscience industry has struggled to form a reliable venture capital base beyond CI, largely because developing research discoveries into viable products and services can take 15 years or longer.

That means early stage investors must wait awhile to earn a return.

“The time it takes from idea to pill in a bottle can be 25 years and several hundred million dollars,” Froshauer said. “The chances of angels getting an exit without many stages of dilution are difficult.”

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